Education Inputs, Student Performance and School Finance Reform in Michigan

Chaudhary, Latika

Economics of Education Review, v28 n1 p90-98 Feb 2009

This paper estimates the impact of the Michigan school finance reform, "Proposal A," on education inputs and test scores. Using a difference-in-difference estimation strategy, I find that school districts in Michigan used the increase in educational spending generated through "Proposal A" to increase teacher salaries and reduce class size to a smaller extent. Then, using the foundation allowance created by "Proposal A" as an instrument, I estimate the causal effect of increased spending on 4th and 7th grade math scores for two test measures--a scaled score and a percent satisfactory measure--and find positive effects of increased spending on 4th grade test scores. A 60% increase in spending increases the percent satisfactory score by one standard deviation. The positive impact of expenditures on test performance seems largely due to higher teacher salaries. (Contains 4 tables.)